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Hi again...
I've received a number of private posts about "Who Makes Money Daytrading."
The thread that provided so much insight over the weekend.
The following is a message I received from a trader who prefers to remain
annonymous. He gave me permission to post it to the list, with his name
and email address deleted.
Please don't ask me for clues about his ID. I'll honor his request.
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I offer the following reply in private. I'm not happy to put matters
private to me in the public gaze of the RT list. One has to carefully
manage one's ego and the influences of others in order to trade
successfully (refer to the Seykota interview in Market Wizards). I traded
while I had a full-time job for eight years. I've now given up my job and
rely on my trading income for my living.
>> Like many others, I have considered (fantasized) about day trading
>>for a living. However, like most things, I know that it would be harder
>>than it appears, so I am keeping my day job for now.
I'd recommend that you work on developing an end-of-day mechanical trading
system that you can apply without needing any attention during the day.
Who wants to be a slave to a screen anyway? What kind of life would that be?
>>1. How did you make the transition to full time trader?
I struggled for 5 years and then traded well for three years. You have to
have huge belief in your system before it's sensible to throw in the job.
I think you also need to have the rest of your life in balance, and I
believe it's important to have other bigger objectives for your life as
well. My wife was killed in a car crash. I now have a new partner, who has
2 kids (I have one). So for me, relying on my trading income is also about
having the time to apply to the new relationships, to make sure they go
well. I think you have to have more than money to motivate you. I'm also
passionate about politics. By trading, I have the time to make a
difference. I also allowed myself to partly see giving up work as allowing
myself time for grieving. This would be the excuse, the way to save face,
if it hadn't worked out. This is important. You must avoid a situation
where things go badly, you get desperate, and overtrade against the odds in
a last-ditch attempt to bail yourself out. I didn't give up my job until
after I had a new partner. It would have been hell to trade for a living
without the love and support of a good woman. She too has to be onboard and
understand that drawdowns are part of the game. I have a trading manual
that I wrote myself. It documents my philosophy, my goals, the mechanical
details of my systems, the software settings, alternative data sources,
backup plans, etc. Having this manual and sticking to it has been
important to the transition. I knew I could trade successfully while I had
the security of a job. I had to be sure I wouldn't lose the plot when the
pressure went on with drawdowns and no monthly salary.
>>2. Would you do it again?
Yes.
>>3. What do you like and dis-like about full time trading?
I feel like a virtual farmer - I have to milk the cows every day. However,
the extra discretionary time I have in my life is a huge privilege. None
of my friends or relatives understand what I do.
>>4. What is your trading style, what markets, etc?
I predominantly use breakout systems, with some entries based on elements
of Elliott Wave. I trade interest rate, currency and energy futures in
Australia and the US. I hold trades for from a day to a year. I set stops
based on max adverse excursion analysis (refer John Sweeney's articles in
Stocks and Commodities or his book "Campaign Trading". I use SuperCharts
2.1, Excel, end-of-day data from Prophet and free sources on the Internet.
>>5. What has been the most challenging aspect of full time trading? >>
(ie. money management, personal psychology, emotional control ??)
You have to really believe in your system, so that you can stick to it. I
have calculated that 93% of my net income comes from just ten percent of my
trades. I have to take every trade, even when I've had a run of losses.
In my first five years, I kept stopping, trading only two different
contracts in NZ. It was when I got serious and started trading a diverse
portfolio with commitment that things came right. One thing I did for a
long time was to read a little bit of the Market Wizards books every night
before I went to sleep. You have to constantly work on yourself to ensure
that you do the right things.
>>6. Without giving away secrets, what are some of your strategies,
>> methods, etc.
See 4 above. For many years, my wife and I never talked about my trading
with friends or relatives. Beware of outsider's influences on your psyche.
You must not own your positions. With the first broker I used I used to
get embarrassed closing out losing trades. When I got a second broker (who
handled orders for the US market) I faxed all my orders. No one knew me,
not even to talk to on the phone. So it was completely impersonal and I
didn't have to worry about my ego or embarrassment.
>>7. How much capitalization (account size) is needed?
Let your testing determine this. I developed a set of trades that my
systems would have produced over ten years, then sampled Monte Carlo style,
and ran thousands of tests to determine drawdowns and the appropriate
capital. I started trading five US markets (mostly on the MIDAM) with
about USD 20k. Read Hite in Market Wizards. I developed my confidence by
determining what percentage of one month, three-month, six-month,
twelve-month and eighteen-month periods would be profitable. I also
determined in advance what level of drawdown, against a given number of
trades would constitute performance so bad that my system was working. So
define your stop loss in advance, not just for an individual trade, but
also for your entire portfolio. >>8. What kind of returns have you been
able to achieve?
Annual returns have been in the range 12 to 65%.
>>9. Any other info that you think is meaningful and helpful.
You need to be prepared to outlay money to buy data and software. You also
need lots of time to put in the work. The following are some of my
favourite quotes, which I think capture the essence of the psychology
required (mostly from the Market Wizards books). The secret to success in
the markets lies not in discovering some incredible indicator or elaborate
theory; rather it lies within each individual. Schwager. Discipline was
probably the most frequent word used by the exceptional traders that I
interviewed. Schwager. What feels good is often the wrong thing to do.
Eckhardt. Those people who adopt a systems approach usually end up
transferring their problems from dealing with the market to dealing with
their system of trading. Tharp. Never countermand the system. Hite. Don't
worry about looking stupid. Schwager. Missing an important trade is a far
more serious error than making a bad trade. Eckhardt. You can't win if
you're trading at a leverage size that makes you fearful of the markets.
Seidler. Never let the short term fickleness of probability overrule the
long run experience of statistics. Winners never quit and quitters never
win. Don't mix in rules from other systems as rationalisations for your
mistakes. Gietzen. Win or lose, everybody gets what they want out of the
market. Seykota.
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|X| Jeff Caplan WCBS Newsradio 88, New York
|X| http://www.newsradio88.com/behindmic/jeffpat.html
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